On appeal from the New Jersey Department of Agriculture, Child and Adult Food Care Program, Agreement No. 07-13-963.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued Telephonically December 9, 2009

Before Judges Reisner and Yannotti.

Community Agencies Corp. of N.J. (CACNJ), Dorothy Knauer (Knauer), Dollie Musa (Musa), Karl E. Becker (Becker), Terence Dwyer (Dwyer) and Dorothea R. Hoffner (Hoffner) appeal from a final determination of the New Jersey Department of Agriculture (NJDOA or department), which terminated and disqualified appellants from future participation in the Child and Adult Care Feeding Program (CACFP). For the reasons that follow, we reverse and remand for further proceedings.

I.

We briefly summarize the facts pertinent to our decision. The CACFP is a food service program established by the United States Department of Agriculture (USDOA), under the authority of the National School Lunch Act, 42 U.S.C.A. §§ 1751-1769e, and the Child Nutrition Act of 1966, 42 U.S.C.A. §§ 1771-1790. The purpose of the CACFP is to "safeguard the health and well-being of the Nation's children" by encouraging the "consumption of nutritious" foods. 42 U.S.C.A. § 1751.

The CACFP provides states with federal "grants-in-aid and other means" to initiate and maintain nonprofit food service programs for children in institutions providing child care." 42 U.S.C.A. § 1766(a)(1). States enter into agreements with the USDOA in which they agree to comply with all applicable federal laws and regulations governing the program. The states, in turn, distribute the funds pursuant to reimbursement agreements (RA) with local program sponsors who have been approved to participate in the CACFP. 7 C.F.R. §§ 226.1, 226.6(b)(4).

In January 2007, CAC and the NJDOA executed an RA governing CAC's participation in the CACFP during the 2007 federal fiscal year, which began on October 1, 2006. The agreement expired on September 30, 2007. It appears that in 2007, CAC provided food services to eligible children enrolled at a child care center called Wellspring II (Wellspring). In June 2007, the NJDOA conducted an onsite inspection of Wellspring's food service program and reviewed certain documents related thereto. NJDOA's representatives met with Musa and Esther Speight (Speight), who were both involved in the operation of the CACFP at Wellspring.

On June 26, 2007, the NJDOA issued a letter to CAC, which was addressed to Musa. The NJDOA identified certain operational deficiencies in the CACFP at Wellspring. According to the NJDOA, those deficiencies related to: (1) missing and/or incorrect applications from program beneficiaries that resulted in the misclassification of children in free versus reduced-rate reimbursements; (2) inaccurate meal counts; (3) inadequacies of the menus; (4) discrepancies between the attendance records and the number of meals served; (5) and failure to produce sanitation, training, and monitoring documentation; and (6) non-compliance with certain lunch service requirements.

In its June 26, 2007 letter, the NJDOA also stated that CAC's misclassification of children had resulted in an overclaim of $249.97 for April 2007. The NJDOA directed CAC to return that amount within thirty days. In addition, the NJDOA directed CAC to submit a corrective action plan and certain documentation by July 17, 2007. CAC did not respond to the NJDOA's letter.

On August 10, 2007, the NJDOA issued another letter to CAC, which also was addressed to Musa. In this letter, the NJDOA stated that CAC's failure to respond by August 14, 2007, to its earlier letter would result in a determination that CAC's operation of the CACFP at Wellspring was "seriously deficient[.]" CAC did not respond to this letter.

Musa submitted a voucher dated September 3, 2007, to the NJDOA seeking reimbursement for meals served at Wellspring in August 2007. On October 18, 2007, the NJDOA sent CAC a letter, which was addressed to Musa, advising that it was withholding the previously identified overclaim of $249.97 from the reimbursement sought for the meals served in August 2007.

In its letter of October 18, 2007, the NJDOA also said that CAC had not addressed the deficiencies identified in the department's June 26, 2007 letter. The NJDOA stated that CAC's failure to respond to future requests for information and corrective action would result in a determination that its operation of the CACFP was "'seriously deficient'" and possible termination of CAC and its principals from CACFP participation.

On October 26, 2007, the NJDOA issued a seriously deficient notice (SDN) to CAC, Becker, Knauer, Speight, Dwyer, Hoffner and Musa by fax and by overnight mail. In a Sponsor Management Plan (SMP) form that CAC executed in January 2007, Becker had been identified as CAC's "Board Chair/Owner/Department Head," Knauer as "Exec. Director/Department Head/Owner," Speight as "Substitute Person Responsible for CACFP Records," Dwyer as "Treasurer," Hoffner as "Secretary," and Musa as "Primary CACFP Contact Person." In the SDN, the NJDOA reiterated its findings from the June 2007 inspection and ordered CAC to submit by November 9, 2007, a corrective action plan and supporting documentation for the period from July 1, 2007 through September 30, 2007.

Upon receipt of the SDN, Knauer and other CAC representatives contacted the NJDOC and informed the department that Wellspring had closed on August 24, 2007, and they were unaware that were problems with Wellspring's food service program until they received the SDN. The NJDOA advised the CAC representatives that CAC was still required to respond to the SDN. On November 7, 2007, CAC submitted a corrective action plan and supporting documents for the period from July 1, 2007 to August 24, 2007. The NJDOA found that the submission was inadequate.

On March 27, 2008, the NJDOA issued a notice of intent (NIT) to terminate CAC, Becker, Knauer, Speight, Dwyer, Hoffner and Musa and disqualify them from future CACFP participation for a specified period of time. In the NIT, the NJDOA stated that it had determined that deficiencies in the operation of the Wellspring food service program had resulted in additional overclaims of $6,836.35.

The department informed appellants that they could appeal from the proposed termination and disqualification and the demand for re-payment of the overclaims. Appellants were advised that the matter would be heard by a NJDOA hearing officer and there would be no further administrative appeal from the hearing officer's decision.

Appellants sought administrative review, and on July 15, 2008, Dwyer, Hoffner, Knauer and Speight appeared before a NJDOA employee, along with certain NJDOA representatives, for a hearing. At the hearing, counsel for appellants stated that the overclaim issue was not an issue at the hearing. Apparently, the hearing officer and the NJDOA agreed.

Appellants then addressed the proposed termination and disqualification from CACFP participation. They argued, among other things, that they could not be terminated or disqualified from the CACFP because, although the NJDOA had identified certain program deficiencies at Wellspring in its June 26, 2007 letter, the department did not serve the SDN upon CAC and its principals until October 26, 2007, which was after Wellspring closed. Appellants said that they were unaware of the program deficiencies while the Wellspring program was in operation. They maintained that, by delaying the issuance of the SDN, the NJDOA failed to afford them sufficient time to take corrective action to avoid termination and program disqualification.

On August 21, 2008, the hearing officer issued a report upholding the proposed termination and disqualification of CAC and its principals, other than Speight. The hearing officer found no basis to disqualify Speight because she was not a principal of CAC. The hearing officer additionally directed CAC and the NJDOA to "negotiate and finalize any outstanding overclaim/underclaim amounts and that any amount due either party be satisfied within [forty-five] days of the receipt" of the report. We are advised that the parties did not thereafter resolve the amount of the outstanding "overclaim/underclaim."

Appellants filed a notice of appeal from the hearing officer's decision on September 26, 2008.

II.

We note at the outset that because the dispute between the parties regarding the "overclaim/underclaim" has not been resolved, the NJDOA's decision is not final for purposes of appeal. Rule 2:2-3(a)(2) provides that appeals to the Appellate Division may be taken as of right from final decisions of State administrative agencies. Such decisions must be "final both as to all issues and all parties." Caggiano v. Fontura, 354 N.J. Super. 111, 123 (App. Div. 2002) (citing Lawler v. Isaac, 249 N.J. Super. 11, 17 (App. Div. 1991)).

We are convinced, however, that because the parties have fully briefed the issues pertaining to the NJDOA's termination and disqualification decision, the interests of justice would be served by considering the appeal from that determination at this time. Accordingly, we grant leave to appeal nunc pro tunc from the NJDOA's decision pursuant to Rule 2:4-4(b)(2).

III.

Appellants argue that the NJDOA's decision terminating and disqualifying CAC and its principals from CACFP participation should be reversed because, in making that decision, the NJDOA failed to adhere to the applicable procedural requirements.

Appellants contend that the NJDOA became aware of certain alleged deficiencies in the operation of the program at Wellspring in June 2007, but failed to issue the SDN and notify CAC's principals of the deficiencies until October 29, 2007. Appellants assert that, because Wellspring closed on August 24, 2007, they did not have a sufficient opportunity to correct the alleged program deficiencies.

To place these contentions in context, we briefly summarize the federal regulations that govern the operation of the CACFP. Those regulations provide that state agencies which participate in the CACFP have the responsibility for establishing the eligibility of new and renewing institutions that participate in the program. 7 C.F.R. § 226.6(b)(1), (2). State agencies are authorized to deny, terminate, suspend or disqualify institutions, their principals and responsible persons from participating in the CACFP under certain circumstances. 7 C.F.R. § 226.6(c)(1)-(5).

The federal regulations further require that before a State agency may terminate or disqualify an institution and its principals from the CACFP, the agency must issue a SDN "to provide the institution and the responsible principals and responsible individuals notice of the serious deficienc[ies] and an opportunity to take corrective action." 7 C.F.R. § 226.6(c)(3)(iii). A "[r]esponsible principal or responsible individual" is defined as a principal or individual employee who, whether compensated or not, the "[s]tate agency . . . determines to be responsible for an institution's serious deficiency." 7 C.F.R. § 226.2.

The federal regulations do not specify the time in which the state agency must issue a SDN, but prescribe an expedited timeframe within which the institution will be required to take corrective action. 7 C.F.R. § 226.6(c)(4). Accordingly, a state agency may not allow "more than [ninety] days for corrective action from the date the institution receives the [SDN]." 7 C.F.R. § 226.6(c)(4)(i). In cases involving serious deficiencies that require "long term revision," the state agency may permit an institution more than ninety days to take corrective action, provided "a corrective action plan is submitted to and approved by the [s]tate agency within [ninety] days." 7 C.F.R. § 226.6(c)(4)(iii).

If an institution, its principals and responsible individual employees are terminated from the CACFP, they are placed on a national list disqualifying them from future participation in the program. The institution, its principals and responsible individual employees remain on the national disqualification list until the state agency "determines that the serious deficienc[ies] that led to their placement on the list [have] been corrected, or until seven years have elapsed since they were disqualified from participation." 7 C.F.R. § 226.6(c)(7)(v).

Here, the NJDOA hearing officer determined that that CAC and its principals had adequate notice of the program deficiencies at Wellspring and sufficient time within which to take corrective action to address those deficiencies even though they were not served with the SDN until after Wellspring closed. The hearing officer apparently reasoned that CAC and its principals had either actual or constructive notice of the program deficiencies at Wellspring because notice had been provided to Musa. However, the hearing officer made no specific findings of fact on these issues.

Moreover, the hearing officer did not address the question of whether the notice provided here was legally sufficient in light of the expressed requirements of the federal regulations, which mandate that before an institution, its principals and responsible individual employees can be terminated and disqualified from CACFP participation, the state agency must first serve the SDN upon these parties and afford them sufficient time within which to take corrective action.

In addition, at oral argument, we questioned whether the NJDOA had acted in conformance with its own regulations by having the matter heard and decided by one of its employees. We asked the parties to file post-argument briefs addressing the question of whether the NJDOA should have referred the matter to the Office of Administrative Law (OAL) for a hearing before an administrative law judge (ALJ).

As the NJDOA acknowledged in its response to our inquiry, the federal regulations governing the CACFP require that a state agency provide "administrative review" of a proposed termination or disqualification. 7 C.F.R. § 226.6(k)(2). The regulations also state that the proceeding must be conducted by an "administrative review official." 7 C.F.R. § 226.6(k)(5)(vi). The regulations additionally provide that the "administrative review official may be an employee of the [s]tate agency[.]" 7 C.F.R. § 226.6(k)(5)(vii).

The NJDOA has informed us that historically employees of the NJDOA have rendered decisions regarding the department's operation of the CACFP. We note, however, that the department has generally provided by regulation that [i]f any dispute is required by law or regulation to be heard formally, or if the Department determines the matter a contested one, the matter shall be treated in accordance with the Administrative Procedure Act, [N.J.S.A. 52:14B-1 to -15] and the Uniform Administrative Procedure Rules, N.J.A.C. 1:1-1. Such disputes will be referred to the Office of Administrative Law for hearing. [N.J.A.C. 2:1-3.10(b).]

The NJDOA acknowledges that appellants' challenge to the proposed termination and disqualification from CACFP participation is a contested matter, within the meaning of N.J.A.C. 2:1-3.10(b). The NJDOA further acknowledges that the applicable federal regulations would permit the OAL to conduct the hearing in this case.

The NJDOA notes, however, that the federal regulations contain certain specific requirements pertaining to the administrative review process. A decision must be rendered within sixty days of the request for administrative review. 7 C.F.R. § 226.6(k)(5)(ix). In addition, the federal regulations require that the decision of the administrative review official be the final administrative determination. 7 C.F.R. § 226.5(x).

Although the federal regulations governing the CACFP allow the NJDOA to authorize one of its employees to act as "administrative review official," and to provide that that the employee's decision will be the final agency decision in the matter, the NJDOA has not adopted a regulation so providing. Rather, as we have explained, the NJDOA's present regulation requires the submission of all "contested" matters to the OAL for hearing before an ALJ.

Thus, we conclude that the NJDOA erred by having its employee conduct the hearing in this matter and in rendering the agency's final decision on the termination and disqualification of CAC and its principals from CACFP participation. We therefore remand this matter to the OAL for a hearing, before an ALJ, with the understanding that the proceeding will be conducted in accordance with the federal regulations. The ALJ must render a decision within sixty days of our decision and the ALJ's decision will be the final agency decision in this matter.

On remand, the ALJ should consider whether CAC and its principals had actual notice of the program deficiencies identified by the NJDOA following its June 2007 review of the Wellspring operations. In addition, the ALJ should consider whether CAC and its principals should be charged with constructive notice of the program deficiencies because notice of the deficiencies was provided to Musa and Speight.

Here, the record does not disclose CAC's relationship with Wellspring, nor does it detail the respective roles that the CAC principals played in Wellspring's operations. The record does not contain any evidence showing the extent to which CAC delegated authority to Musa and others to operate the CACFP at Wellspring and the extent to which CAC and its principals oversaw the operations at Wellspring.

The ALJ also should consider whether CAC and its principals could be terminated and disqualified from the CACFP, even if they had actual or even constructive notice of the program deficiencies at Wellspring before the NJDOA served the SDN. As noted previously, the federal regulations provide that termination and disqualification cannot issue until after the state agency has served a SDN, which did not occur here until October 26, 2007.

The ALJ also should address the "overclaim/underclaim" issue that apparently remains unresolved. If the parties cannot reach an agreement on that issue, the ALJ should hear evidence on this aspect of the controversy and render appropriate findings of fact and conclusions of law, so that a final decision can be rendered on all issues.

The issues we have identified are not intended to be exhaustive. Our opinion therefore should not be interpreted as foreclosing the parties from raising any other legal or factual issue that might be pertinent to the agency's decision to terminate and disqualify CAC and its principals from CACFP participation.

Reversed and remanded to the OAL for further proceedings in conformity with this opinion. We do not retain jurisdiction.

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